Budget 2024-25: A Bullish Boost for the Stock Market & Corporate Sector*
The latest budget has set the stage for a potentially bullish opening in the stock market as trading resumes. With the gong set to ring, traders may soon echo calls of “Lao Maal” as investor sentiment gets a boost from key fiscal measures.
### Encouraging Equity Investments
One of the most significant changes is the increased tax rate on income/fixed-return mutual funds (up to 25%), while equity-based funds retain their 15% tax rate. This move is designed to incentivize fund managers to shift investments from fixed-income assets to stocks, reducing their tax burden. The expected influx of capital into equities could fuel a fresh rally, potentially pushing the KSE-100 beyond the 125,000 mark—a staggering 60% increase from last June’s close.
### No Negative Surprises for Investors
Pre-budget fears of higher capital gains tax (CGT) and dividend withholding tax hikes did not materialize, sparing the market from a potential downturn. However, the increase in interest income tax (from 15% to 20%) may push savers towards equities and mutual funds for better returns, especially with interest rates declining to 11%.
### Tighter Regulations for Non-Filers
A notable change is the restriction on non-filers from buying stocks or investing in mutual funds. While existing investors (with verified KYC) remain unaffected, this could limit new entrants unless they become tax filers.
### Balanced Funds to Benefit the Most
Pure income or equity funds may see little change, but balanced funds (mixing fixed income and stocks) stand to gain significantly. The tax differential will likely push them to increase equity exposure, enhancing returns for investors.
### Corporate Tax Relief—Partial but Positive
The super tax on large corporates has seen a marginal reduction:
- Rs. 200-250M revenue: Down from 2% to 1.5%
- Rs. 250-300M revenue: Down from 3% to 2.5%
- Rs. 300M+ revenue: Down from 4% to 3.5%
While some hoped for a complete abolition, the cuts should still improve earnings for affected firms.
### Agriculture Sector Dodges a Bullet
A major relief for the agri-sector: the feared 18% GST on fertilizers, pesticides, and farm equipment was not imposed, sparing key industries from cost surges. This decision should positively impact fertilizer, tractor, and chemical stocks.
### Market Outlook: Bullish Momentum Ahead?
With incentives favoring equities, stable CGT, and corporate tax relief, the market could see sustained bullish momentum. If mutual funds reallocate towards stocks as expected, the KSE-100 may soon target new highs.
Bottom Line: The budget has laid the groundwork for a stock market surge—will investors ride the wave?